Elpida bondholders to propose alternative to Micron takeover

SAN FRANCISCO—A group of bondholders of bankrupt Japanese DRAM vendor Elpida Memory Inc. will vote against Micron Technology Inc.'s proposed $2.5 billion acquisition of Elpida, according to multiple media reports which cite a filing made with Tokyo district court.

The bondholders, who did not identify themselves other than to say they were multi-billion dollar international funds investing on behalf of clients, said they planned to present an alternative proposal to Micron's offer, according to a report Tuesday (July 10) by the Reuters news service.

According to the Reuters report, the alternative plan would require court approval before it could be put to a vote by all Elpida creditors. It is unclear if the bondholder group has enough votes to void the Micron deal, which was announced last week.

Micron (Boise, Idaho) confirmed last week that it signed a definitive agreement to acquire and support Elpida for $2.5 billion. Under the terms of the deal, Micron would pay $750 million to acquire Elpida's assets, then pay another $1.75 billion cumulatively to Elpida's secured and unsecured bondholders in annual payments spread out over seven years. That money will be taken from cash flow generated from Micron's payment for foundry services provided by Elpida, as a Micron subsidiary.

In a report circulated Tuesday, C.J. Muse, an analyst with Barclays Capital Inc., said it is not surprising that some Elpida bondholders are unhappy with the deal, given that they will not recover most of the money that they are owed. But Muse said Barclays sees little risk of unsecured debt holders influencing the outcome of the deal.

Muse noted that Micron's stock price dipped about 6 percent Tuesday on the news, down to $6.09 per share. "We believe concerns are overblown," Muse wrote.

"We believe this type of action by unsecured bondholders is fairly standard," Muse said. He added that Micron said the bondholders involved are a subset of unsecured bondholders who purchased the bonds after Elpida filed for bankruptcy in February.

A spokesman for Micron did not immediately respond to a request for comment.

Maybe. I would say no more than a possible wrench in the works. As CJ Muse says, I think these kinds of moves are pretty standard. It should come as no surprise that some unsecured bondholders are not thrilled about the deal, but it sounds like it's unlikely that they will be able to hold it up.

It's a screaming deal. But that's not the whole deal. Micron still must pay $1.75 billion to Elpdia's debt holders. That's a lot of money, though not nearly as much as Elpida owed them. It's a fire sale deal, and a very good deal for Micron right now, but the final evaluation will probably have to wait a few months or years.

If the deal goes through then Micron gets extra capacity at a knock down price (and hasn't Apple indicated that it might move more memory sourcing to Elpida from Samsung??). If the deal does not go through then the Elpida capacity leaves the memory market - good for all DRAM players. I see Micron as a winner in either scenario?

micron is better off going to support much higher data-rates via multi-gigabit differential interfaces,
look ahead, forge, the market will be there, people are more and more into content, videos, social networking, and you don't need to rely on older technologies, build faster, better cheaper ones

The main reasons are that Elpida paid full price to build and equip their fabs. Micron is buying them for pennies on the dollar. So Micron can afford smaller profit margins to get a return on their investment.
Also, with Elpidas capacity Micron will gain economies of scale, spreading out R & D and other fixed costs over more wafers, leading to lower net manufacturing cost per wafer.